July - Summer Edition - CI Investments

Introducing Black Creek
[Q] Why have you chosen not to hedge against the effects
of currency?
KANKO: Hedging is supposed to reduce the volatility of your
expected results – but it comes at a cost. It’s an ongoing cost
that we’ve chosen not to incur because it eats up capital and
we don’t think it serves any long-term purpose. Plus, many
companies that we hold are already hedged, either through
where they generate their sales and earnings, or they have
hedges in place.
JENKINS: The other thing is that for Canadian investors,
the dollar is pro-cyclical. If the global economy strengthens,
the Canadian dollar gets strong – particularly if energy
prices strengthen. There’s a natural offset by owning a global
portfolio to slowdowns or weakening of the economy. We
saw that in 2008, when the equity market was down 50% or
more, the Canadian dollar fell from US$1.02 to US$0.74. A
global portfolio did substantially better in a weakened market
than a Canadian portfolio. Our view of currency is based on
purchasing power parity because over the long term that is
the most reliable indicator. Relative to the U.S. dollar, we feel
the Canadian dollar is overvalued by 25%. It’s also overvalued
relative to the pound and euro. We have views on currencies,
but they’re just one of the factors that go into the decisionmaking
process.
[Q] Canadian investors still have a large percentage of
their holdings in domestic companies. What would you
say to Canadian investors about going global?
JENKINS: In just about every country studied, people carried
a home market bias. Some of that is related to currency, some
of it is a form of nationalism – I don’t know how else to put it.
People tend to think that domestic companies are better than
foreign ones. We try to find the very best company we can
whether it’s in Canada, Japan or the U.S. – each environment
has its own positives and negatives. A Canadian company has
a lot of positives and some negatives – so does a Japanese
one. We try to look at each case independently and find the
25 best ideas.
KANKO: Plus, the Canadian market is pretty narrow – it’s
largely resources and financials. If you look at our portfolios,
there are a lot of sectors you cannot access in Canada. There
is a world of opportunities out there that simply does not exist
in Canada.
JENKINS: Another way to say it is, “Okay, if I’m in Canada
and have a portfolio of stocks, why would I go elsewhere?”
Well, I’d go elsewhere to get a better company or to invest
in industries that are not available in Canada. For example,
if I’m going to look at an oil company, why would I buy an
oil company somewhere else? It has to be better than a
Canadian one. Adidas owns Reebok CCM and everyone
knows CCM hockey equipment – they just don’t know it’s
owned by the Germans.
Black Creek Investment Management
Toronto-based Black Creek Investment Management was
founded by Bill Kanko in February 2005. He was later joined
by Richard Jenkins in July 2008. They believe that their ability
to develop proprietary investment ideas will grow wealth for
their clients over the long term. Their goal is to provide capital
growth over the long term through investments in common
equities, and to achieve superior returns relative to equity
market averages in general and to competitors.
Black Creek Investment Management strives to offer a worldclass
global equity capability for its clients. Building on the
background, experience and track records of the founding
partners, the managers aim to provide long-term results that
are among the best of their competitor peer group.
SUMMER 2011 PERSPECTIVE AS AT JUNE 30, 2011 5